Enacted and formulated in order to improve the labour contract system, specify the rights and obligations of both parties to the labour contracts, protect the legitimate rights and interests of the workers and construct and develop a harmonious and steady employment relationship.

The law confirms that all individual workers have the right to negotiate their own written employment contract with their employer, specifying terms, conditions and benefits. It enhances specific individual rights by establishing a statutory probationary period for a fixed term contract, improving health and safety regulations, requiring redundancy payments to be made after the termination of a contract, and generally making it more difficult for employers to terminate contracts, especially those of long serving workers.

These latter provisions, in particular, provoked an outcry from domestic and foreign employers’ organizations, who claimed the legislation would drive up costs and make doing business in China more difficult. The American Chamber of Commerce in Shanghai bluntly opined that the law “could have negative impact on the investment environment in China.” The European Union Chamber of Commerce argued in its submission to the NPC that “the rigid provisions of the draft law will restrict employer flexibility, and ultimately will increase costs for Chinese producers.” It warned that: “Any increase in production costs could force foreign companies to review new investments or question whether to continue operations in China.”